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Thrill-seekers will line up to ride their favourite roller coasters this summer. The fiendish devices prompt rushes of adrenalin and queasiness, but offer little in the way of any real danger.

The same is not true for stocks. Investors risk losing their money in the market after wild and stressful rides. To avoid sleepless nights, many investors turn to dividend stocks for succour because they’ve offered good returns with a modest amount of downside risk.

Today, I’ll focus on stable dividend stocks that sport relatively placid return patterns because they’ve fared well in the past.

The project begins in Canada with the largest 300 common stocks that have their primary listings on the TSX. It’s a group that’s similar to the S&P/TSX Composite Index.

A portfolio that invested an equal amount of money in each of the 300 stocks, rebalanced each year, grew by an average of 8.8 per cent annually over the 25 years through to the end of 2018. By way of comparison, the S&P/TSX Composite Index gained 7.4 per cent annually over the same period. (All of the return figures herein include dividend reinvestment.)

A dividend portfolio with an equal amount of the dividend payers in the 300 stock portfolio (205 of the 300 stocks at the moment) would have gained an average of 11 per cent annually over the 25-year period.

Simply sticking with dividend stocks provided a nice boost.

A third portfolio, which I’ll call the Stable Dividend portfolio, goes a step further. It starts with the dividend payers from the 300 stock portfolio and buys an equal amount of the 20 stocks with the lowest volatility (over the prior 260 days) each year. It fared even better with an average annual return of 13.7 per cent over the 25 year period.

It beat the S&P/TSX Composite Index by an average of 6.3 percentage points annually.

Good returns are one thing, but risk-averse investors also want to be able to sleep at night. I moved from annual to monthly data to explore the downside, which itself necessitated a swap from the annual rebalancing period to monthly rebalancing. (The change boosted the annual returns of the Stable Dividend portfolio by about 0.04 of a percentage point.)

The accompanying graph shows the performance of the Stable Dividend portfolio and the S&P/TSX Composite Index from the end of 1993 to the end of April, 2019. Over all, the ride was a fairly steady one.

The second graph highlights the portfolio’s performance during down periods. It shows how far the portfolio fell, as a fraction of its prior peak, and includes similar data for the index.

For instance, the S&P/TSX Composite Index fell to less than 60 per cent of its prior high in 2002 and in 2009. In other words, it declined by more than 40 per cent on both occasions based on monthly data. The Stable Dividend portfolio, on the other hand, was basically unfazed by the 2002 market decline (it didn’t hold Nortel) and fared better than the index in 2009 with a peak-to-trough decline of 26 per cent. While it wasn’t a perfect prophylactic against downturns, the portfolio offered a fair amount of downside protection.

The current list of Stable Dividend stocks is provided in the accompanying table and, for what it’s worth, I own about a third of them. The portfolio is stuffed with banks, utilities, and telecom firms and it sports an average yield of 4.6 per cent, which is nothing to sneeze at.

A few cautionary notes are in order. While the Stable Dividend portfolio generated strong returns with a modest level of downside risk in the past, it might not continue to do so in the future. For instance, it benefited from a declining-interest-rate environment over the past 25 years that isn’t likely to be repeated over the next 25 years. However, it should do reasonably well while offering a relatively smooth ride.

Take a look at what the Stable Dividend portfolio has to offer before lining up for the market’s wilder rides.

Stable Dividend Portfolio

NamePrice ($)YieldMarket Cap ($M)
Royal Bank (RY)104.393.91%149,892
TD Bank (TD)73.734.01%134,759
Bank of Nova Scotia (BNS)70.534.93%86,225
Bank of Montreal (BMO)102.863.89%65,693
CIBC (CM)109.395.12%48,584
Rogers Communications (RCI.B)69.112.89%35,451
Telus (T)49.174.58%29,543
Fortis (FTS)50.123.59%21,597
National Bank (NA)63.104.12%21,169
Power Financial (PWF)30.306.01%20,122
Intact Financial (IFC)114.752.65%15,972
Shaw Communications (SJR.B)27.384.33%13,993
Hydro One (H)21.994.39%13,105
Emera (EMA)50.524.65%11,915
Canadian Utilities (CU)36.804.59%10,047
Algonquin Power (AQN)15.344.95%7,270
First Capital Realty (FCR)21.094.08%5,377
Sienna Senior Living (SIA)19.024.83%1,258
Timbercreek (TF)9.267.45%734
Atrium Mortgage (AI)13.616.61%532

Source: Bloomberg (May 13, 2019)

Norman Rothery, PhD, CFA, is the founder of